Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

Perceptions Are Reality

When a market trades between support and resistance, buyers and sellers are adjusting their actions according to what each perceives as being fair market value. At support, demand has increased to a point where it balances out supply. Conversely, at resistance, demand has decreased (supply has increased) to a point where it again balances out supply. These balance points are different at each price level.

As with rumors and advertising, the more times we hear something, the more we accept it. In the markets, the more times a market touches a support or resistance level, the more important that level becomes in the minds of investors. Buyers and sellers become accustomed to acting in a certain way at each level. Unless ...